Good afternoon guys and gals!
Thanks for all the great feedback!
@Mitch Coluzzi Wow! You've acquired an impressive portfolio in a short time and at such a young age, I'm inspired! I'm very interested in following your endeavors and if we're ever in the same city, let's meet up! (that goes for everyone on BP, send me a message if you're local or have any trips to the Philly area planned!)
@M. Bickers Thanks for the counter to Mitch's ideas about living where you rent as well as the reiteration on the dangers of emotions in investments. Too bad you didn't get to live out your dreams with the 2nd floor, but I'm glad it turned out to be a good decision in hind sight!
Living where you rent
I'm going to have to agree with M on this one! My parents have built a very successful rental business by only purchasing homes within walking distance to our house. I followed their example with my first investment properties and so far the locality has been a great convenience (plus the town has HUGE potential). I can understand Mitch's hesitation with being neighbors to your tenants but we have been doing it at my parents house for 18+ years with no major issues (a dozen tenants live either right next door or within a stones throw). To give myself a little buffer, I have made a point of presenting myself as the property manager not the owner. This way, I can always buy some time on decisions by telling tenants I need to discuss with the owner.
I have a completely different strategy when investing in mortgage notes and my geographical focus is nationwide. The difference is that when you're the bank (a mortgage note holder), you have no obligation to the owner of the property for repairs and maintenance (In fact - it's the other way around! The property owner agrees to keep the property in good condition).
Emotions and investing
I've had first hand experience of the perils of making emotional decisions about investments and I think I've learned my lesson... I'm terrible at speculating on equities because I continue to make this mistake. One example - I doubled my money on Tesla selling at $60 a share (it now trades for $280+). In this example I got lucky, most of the time I lose... Let's just say I'm net-negative in the stock market :(
As for the 2nd floor project at hand. Yes - I'll admit that I'm emotionally invested but I also have the evidence to suggest it's a good investment. My parents actually have already completed a very similar project on top of our garages at home. It was even more difficult to get approved as the garages spanned across 2 different property lines, but my dad was able to get it done! Therefore, the zoning, use/occupancy approvals, and even the construction isn't my biggest concern.
Also - the numbers work! 1,000 sq ft condos with one garage parking spot within a mile are selling for $175k+ and rents are ~$1,500. I've had the project unofficially estimated and for what I'm looking for, I should be able to get it done for less than $100k.
I will probably push to split the property so the garage structure is on a separate parcel and am confident this new construction on it's own parcel will appraise for $200k+. Assuming I can build within budget and I'm able to get the parcel divided (which is already been established by precedent for this property with the previous split) then I will own 2 properties conservatively worth $350k combined for a total cost of less than $290k and a monthly rental potential of $3,200 (as of today, but certain to increase). A $100k outlay for an additional $1,500 per month is a better yield than I would get buying another rental in the area. I think you might be right in stating that your ROI (calculated based on equity) on hardscaping, kitchen and bath renovations would be greater but as a buy & hold play, I am placing more value on increasing monthly rent potential. Adding another unit seems to be the best way to maximize rents (at least at this time as I'm 100% occupied for another year).
With mortgage financing super cheap I really want to lever-up and lock in these low rates on cash-flow positive properties with upside potential from appreciation. This deal fits the bill and allows me to push myself to achieve something that I think has the potential to turn out awesome.
PS - side note, I need more advice! My tenants texted me yesterday with an emergency situation where they needed to give their friend's cat a home and are willing to pay $100 extra per month. I told them if they keep it out of the third floor (where there's carpet) it might be a possibility. Any opinion here on allowing cats?
